Applying Basel III in

Vietnam
Mixed opinions about the
possibility of implementation
of basel III

Support
Vietnam banks already met a minimum of
8% Capital Adequacy Ratio (CAR) under the
new internaltional banking rules, or BaseIII.
In Vietnam, CAR is calculated mostly based
on Tier 1 capital and most local banks CARs
already satisfied a minimum of 8% by end
of 2009 and are expected to hit 9% in line
with Circular 13 issued by the State Bank of
Vietnam

CAR 2009 of some Vietnam banks (Source:

SME Securities)

Bank CAR
ACB 9.97%
CTG 8.06%
EIB
30.56%
SHB 15-20%
STB 11.41%
VCB 8.11%

Challenges
CAR of banks in Vietnam are calculated
according to Vietnam accounting
standards. => different with the
international accounting standards.
Tier 2 capital of the bank Vietnam is
still limited.
Incomplete application of basel II
=> Unlikelihood to implement soon or at
the same time with other countries.

Applying Basel II in Vietnam

Basel II requires high cost, adversely
affecting the profitability of banks
=> Different approach to Basel II our
own strategy: small banks have
consolidated or merged to reduce risk,
focusing on expanding the size and
type of service which direct the bank
merge with bigger and joint ventures,
associated with foreign banks.

Issuance of Decisions and

Circulars
On 19 April 2005, the State Bank of Vietnam
issued Decision No 493/QD-NHNN on Asset
Classification and Loan Loss Provision,
Decision 493/2005/QD-NHNN which requires
the provisioning to be mainly based on the
overdue status of loans and not on the
realistic expectation of repayments. Bank
inspectors are currently only checking the
compliance with regulations rather than
assessing realistic repayments.

 Decision No. 457/2005/QD-NHNN dated April 19,

2005 of the SBV Governor promulgating the
Regulations on Prudent Ratios in Operations of
Credit Institutions (Decision 457).
In general, regulations of the SBV are in line with
Basel on large exposures except for the maximum
limit of total exposures to a closely related group
of borrowers. In accordance with Basel, 25 percent
of a banks capital is the maximum limit for total
exposures for a closely related group of borrowers
while Decision 457 allows the limit to 60%.

Unmet standards
Only with the advanced
measurement methods, the majority
of Vietnam's commercial banks did
not meet the qualitative and
quantitative standards set by
Banking Supervision Committee of
the BIS proposed,

Deadline for Basel II in 2015

Vietnam is not a member of the Basel Committee on
Banking Supervision and is hence not bound by the
implementation timeline for Basel II.
Weak credit assessment processes led to a sharp
rise in non-performing assets in the banking sector.
Credit loss provisions for these loans remain largely
unrecognized in the financial statements of
domestic banks.
Reported NPL ( non-performing loans) figures range
from 1% to 3%, said SBV governor Nguyen Van Binh,
but noted that the real figure is actually closer to
9%. => deadline may not be met.